How a new machine could collapse the bitcoin market

INTERNET — New hardware designed by Butterfly Labs promises to mine bitcoins more cheaply than ever before. If you aren’t familiar with bitcoins, they are a digital currency deriving their rarity and value through advanced cryptographic algorithms. Only so many bitcoins can be “found,” and they first wind up in the hands of those with enough computing cycles to slog through the complicated math.

In the past, the price of electricity did not make bitcoin mining a profitable endeavor, but engineers at Butterfly Labs have built a line of machines specifically designed to mine more bitcoins than ever before while using a minimal amount of electricity. Thousands of these mining machines have been pre-ordered and will soon ship to eager consumers hungry to make a quick buck.

Recently, the bitcoin market has been hit with severe hyper-deflation, and this rapid increase in bitcoin value could cause trading on the market to freeze up. In the past month, the price of a bitcoin has skyrocketed from $40 to nearly $100. Analysts concerned about new mining technology warn that this bubble may soon burst.